Australia's major banks "have sufficient buffers" to cope with a "downturn in the housing market that could contribute to weaker growth and weaken the banking sector," Moody's Investors Service concludes in its annual credit analysis on the sovereign rating on Australia.Moody's affirmed a "stable outlook" on Australia's Aaa credit rating, a view that distinguishes the credit ratings agency's view on the sovereign rating from Standard & Poor's.S&P, in an assessment published in early July, revised the outlook on Australia's AAA rating to "negative".Moody's yesterday argued that in the event of a major housing shock "the fiscal costs to the government [from supporting banks] would be minimal."It put the "banking sector risk" in Australia at "very low" but acknowledged "Australia's high and rising housing-related household debt levels, combined with a large share of mortgages as part of the banks' portfolio of assets, pose potential risks to financial stability. "Low nominal income growth in recent years and a buoyant housing market in key regions have led to an increase in household debt to income ratios to high levels by historical and international standards. "This situation makes households more vulnerable to a negative economic or housing shock, increasing the risk of a marked retrenchment in spending—as households strive to meet debt repayments—and exacerbating the negative effects on the economy."Moody's wrote that "banks have built up substantial buffers against potential losses in their mortgage portfolios" noting that "a series of prudential measures have lowered the average loan-to-value ratio of the major Australian banks' mortgage portfolios to below 50 per cent .... These factors, together with the improving loan underwriting standards in more recent vintages, are likely to limit any final losses in the banks' mortgage portfolios should a negative shock occur."